A recent call to the UK Register of Expert Witnesses Helpline
raised the question of whether deferred payment terms were
‘conditional fees’ (which are, of course, banned for experts)
and what was their effect on income tax

The Urgent Issues Task Force (UITF) is that part of the Accounting Standards Board which steps in when unsatisfactory or conflicting interpretations have developed about a requirement of an accounting standard or the Companies Act 1985. The UITF seeks to arrive at a consensus on the accounting treatment that should be adopted in such cases. It must be a matter of concern for us all that by 2005 the UITF had already managed to find 39 urgent accounting matters upon which to opine. But, for expert witnesses, it is the content of UITF abstract 40 that is of particular note.

UITF 40 is about the recognition of turnover from contracts for professional services which span an accounting year-end. In summary, the ‘old’ treatment of such work tended towards accounting for any administrative costs associated with such contract work on a year-by-year basis, but waiting until the contract was complete before accounting for the professional service itself. UITF 40 changes this. It requires the tax payer to estimate the proportion of the contract that has been completed and to pay tax on that fraction of the full contract value, regardless of whether any payment has been made under the contract.

Of course, this does not alter the total amount of tax that has to be paid, but it does bring forward the timing of the tax payment.

Now, for the vast bulk of expert witness work, where the instruction lasts a few months and the expert stipulates payment terms of a month or two, this is not a matter of any great concern. But for any expert who routinely agrees to deferred payment terms, e.g. deferring to the end of the case, UITF 40 will have more serious cashflow consequences.

We have long advocated that expert witnesses adopt a properly commercial approach to the contractual side of their forensic work. In this respect, expert witnesses ought not to allow any element of conditionality to creep in. Indeed, it is expressly forbidden for experts to build any conditionality into their fee structures. However, the courts have stopped short of an absolute ban on conditionality in that it is still acceptable for an expert to allow the timing of payment to be dependent on when the case ends. Allowing this is, in our view, plainly wrong because surely it can raise the prospect of an expert altering his opinion to ensure early settlement.

Still, in case you doubted it, law makers are mostly lawyers. If the value of a fee itself is conditional (i.e. the solicitor’s fee when working under a CFA), UITF 40 does not apply!